International Journal of Innovations in Engineering and Management, Vol. 2; No. 2: ISSN: 2319-3344 (July-Dec. 2013)

Agenda of Women Empowerment at the Boards – Amendment to Companies Act

Yogesh Patel*, Charul Patel**

*Head, Dept. of Accountancy , S.K. Somaiya College of Arts, Science and Commerce, Vidhyavihar, Mumbai, India. **Asst. Prof., Department of Accountancy, SIES College of Commerce and Economics, Sion, Mumbai, India. Email: [email protected], [email protected]

Abstract: India has a brand new company law that’s more appropriate for the 21st century and its challenges. The new Companies Act is a landmark in the history of Corporate India. The 1956 Act was passed in the first decade of Free India; the business landscape has changed radically in the last 60 years. The Act replaces the existing Companies Act, 1956, which has been amended at least 25 times in the past 57 years, with many of its provisions found to be outdated and inadequate. The new Act introduces a new provision relating to Women Directors . It stipulates at least one woman director’s appointment on the Board of a company. This is a step in the right direction. The world over, many women professionals have succeeded in eliminating the invisible glass ceiling — and Indian women are not far behind. Women constitute 24 per cent of the Indian workforce. The 1980s and 90s witnessed increasing number of women enrolling in engineering and management institutions in India. Many of these graduates find employment in software, banking, consulting, telecom, hospitality, even entertainment. In some B-schools, women outnumber men in class strength.

Keywords : Women, Women Directors, Amendment, Companies Act 2013

Accepted On: 28.11.2013 1. The Backdrop account for only 11 percent of total directorships. In India, a sample of 89 companies with more than The status of women in India has been subject to $1 billion in market valuation, the women tremendous changes over the past few percentage is less than 7 percent. And we are millennia. From equal status with men in ancient talking only about the biggest companies here. times, through the low points of the medieval According to The Economic Times, Aug 13, period, to the promotion of equal rights by many 2013 [1], though we have women CEOs in reformers, the history of women in India has been banking, IT, media and hospitality industries — eventful. and yet this is more the exception than the rule. In modern India, women have held high offices in The number of women reaching top management India including that of the President, Prime positions is still low. Women constitute only 14 Minister, Speaker of the Lok Sabha and Leader of per cent of senior management positions in India, the Opposition. As of 2011, the Speaker of the against the global average of 24 per cent. This Lok Sabha and the Leader of the Opposition in number falls to a paltry 5 per cent when it comes the Lok Sabha (Lower House of the parliament) to top management or board positions. were women. However, women in India continue to face 2. Workforce participation atrocities such as rape, acid throwing, and dowry killings while young girls are forced into Contrary to common perception, a large prostitution. According to a global poll conducted percentage of women in India work. National data by Thomson Reuters, India is the "fourth most collection agencies accept that statistics seriously dangerous country" in the world for women and understates women's contribution as the worst country for women among workers. However, there are far fewer women than the G20 countries. men in the paid workforce. In urban India, women The Economic Times, Aug 13, 2013 [1], GMI participate in the workforce in impressive Ratings’ Women on Boards Survey 2013, even on numbers. For example, in the software industry the world’s best-known companies, women

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International Journal of Innovations in Engineering and Management, Vol. 2; No. 2: ISSN: 2319-3344 (July-Dec. 2013)

30% of the workforce is female. In some of the issuing companies during the period April 2002 to workplace women enjoy parity with their male March 2012 [5]. The issues which were delisted or counterparts in terms of wages and roles. listed on NSE or on which complete information In rural India in the agriculture and allied could not be gathered were dropped out from the industrial sectors, females account for as much as final sample. The study reveals the following: 89.5% of the labour force. In overall farm production, women's average contribution is Table 1: Gender wise categorization of board positions estimated at 55% to 66% of the total labour. Gender No. of directors Percentage (%) According to a 1991 World Bank report, women Male 2991 95.16 % accounted for 94% of total employment in dairy % production in India. Women constitute 51% of the Female 152 4.84 % total employed in forest-based small-scale enterprises. Total 3143 100 % One of the most famous female business success stories is the Shri Mahila Griha Udyog Lijjat From Table 1, we can see that the percentage of Papad. In 2006, Kiran Mazumdar-Shaw, who women directors on the board was only 4.84% as founded Biocon, one of India's first biotech compared to that of the men directors who companies, was rated India's richest woman. Lalita comprised 95.16 %. This clearly reflects low D. Gupte and Kalpana Morparia were the only representation of women on the boards. businesswomen in India who made the list of the Forbes World's Most Powerful Women in 2006. Table 2. Designation of women directors as Chairperson/MD Gupte ran ICICI Bank, India's second-largest Designation Number of Percentage bank, until October 2006 and Morparia is CEO of women JP Morgan India. CHAIRPERSON 7 4.61% On the brighter side of our nation where the developed society resides names like Chanda MD 5 3.29 % Kochhar, Naina Lal Kidwai, Indra Krishnamurthy Nooyi, Shikha Sharma, Ekta Kapoor, Sunita Chairperson & MD 1 0.65 %

Narain, Neelam Dhawan, Sulajja Firodia Motwani, Other Positions 139 91.45 % Vinita Balli, Mallika Srinivasan, Sara Mathews, Aruna Jayanthi ……dominate the Corporate Total 152 100% Sector. These names are few and can be counted on hands. From Table 2, we can see that the percentage of But when we look at the overall picture, we find women directors as Chairperson was 4.61%, as that in India the presence of women in board MD was 3.29% and as Chairperson and MD was a rooms is worse than the globally bad ones. The meager 0.65%. Therefore the percentage of presence of women in board rooms and their women director occupying other positions was contributions has been rather rare case in India. 91.45 %. Considering the fact that Indian corporate sector is Table 3. Gender wise status of board members the world’s second fastest growing economy, it STATUS MALE % FEMALE % TOTAL has no reassuring numbers of women as boards of EXECUTIVE 1062 33.92 68 2.17 36.09 % directors. Business Today, September 2011 edition [2] says that, Women constitute only NON- 403 12.87 51 1.63 14.50 % 5.3% of the total number of board members in the EXECUTIVE top 100 companies by market capitalization on the NON- 1516 48.42 31 0.99 49.41 % Bombay Stock Exchange (Report by Standard EXCEUTIVE Chartered Bank, 2010). INDEPENDENT The IPOs issued in India since 2002 and listed on TOTAL 2981 95.21 150 4.79 100 % Bombay Stock Exchange were investigated for the The Table 3 shows the representation of men on women presence on board of directors. The sample various board positions as executive, non- for gender diversity of boards includes 404 IPO

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International Journal of Innovations in Engineering and Management, Vol. 2; No. 2: ISSN: 2319-3344 (July-Dec. 2013) executive and non-executive and independent was Pharmaceutical Industries Ltd., Asia’s largest 95.21 % whereas that of women was merely 4.79 generic drug maker, and Tata Consultancy %. Services Ltd., the continent’s No. 1 software These results show that there is yet a lot of work to exporter by value. be in the direction of empowering women on the board of directors of corporate in India. Table 4. Country wise presence of females as directors on board Country Percentage of women 3. The Beginning of a Change – The Norway 36.3directors New Companies Act, 2013 Finland 26.4

On 29 August 2013 the new Companies Bill Sweden 26.4 finally received the President’s assent that made it South Africa 17.4 into a law, thereby replacing the six decade old France 16.6 regulations under the Companies Act, 1956. Denmark 15.6 The Companies Act, 2013 [4] allows for a Australia 13.8 contemporary legislation for regulation of the Germany 12.9 corporate sector in India. The Act, amongst other US 12.6 aspects, provides for business friendly corporate regulations, better corporate governance, focus on China 8.5 corporate social responsibility, enhanced India 5.2 disclosure norms, investor protection, introduction Brazil 4.5 of class action suits, one-person companies, Japan 1.1 capped auditors’ tenures and increased the number Source: GMI Ratings’ 2012 Women on Boards Survey, March 2012 of independent directors on the boards of listed The Table 4 shows the presence of females as companies in an effort to improve governance etc. directors on board in various countries and the One of the most interesting features of the law is huge variation from the highest 36.3% in Norway that, it seeks to ensure more female oversight on to the lowest 1.1%T in Japan is observed. how companies are run in the world’s largest Michaels III, E. G [11] in his study clearly says democracy that is battling the worst sex ratio since that the case for diversity is proven. A group independence in 1947. comprising people with different mind wiring and Corporate leaders in India have been watching the experiences can deliver intellectually superior and new Companies Bill's passage through the houses innovative outcomes on any issue compared to a of parliament closely. The bill mandates at least group which is homogeneous. one woman on the board of a certain class of Fernandez, J. P [8] says that this argument applies companies — to be determined by the rules that to gender diversity on corporate boards . In are being framed potentially based on market cap. addition, effective corporate boards are about While there are murmurings of quotas, in reality, 'balance'. They must be fierce watchdogs yet this is a progressive step that continues the supportive mentors of the management; they must move to increased discipline in governance and an ask tough, detailed questions on business and innovation orientation. management performance - even while respecting Almost half of the top 100 companies traded on the management's freedom to perform. They need BSE Ltd., including the biggest two by market to ensure the balance of long- and short-term value, don’t have a single female member, orientation, and the good of all stakeholders - according to data compiled by Bloomberg. As investors, employees, business partners and many as 6,000 women directors will be needed as society at large, and ensure the right company firms look to fill the seats, estimates Ms. Preeti values and talent pool. Malhotra, who helped draft the law. Apart from the famous McKinsey study of 2007, Firms that don’t have a female board member multiple studies in diverse countries have made include billionaire Mukesh Ambani’s Reliance the case for women on boards. For example, the Industries Ltd., Dilip Shanghvi’s Sun 2011 study of Dutch companies by M Luckerath-

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International Journal of Innovations in Engineering and Management, Vol. 2; No. 2: ISSN: 2319-3344 (July-Dec. 2013)

Rovers of Nyenrode University [7], showed that don’t have enough board-ready women companies with female directors performed better, [executives]. There is need for a talent pool to be financially, than those that did not. The research identified and prepared for serving on boards. argues that besides governance roles, Boards are a Companies complain that they cannot find enough critical linkage mechanism to the broader of them. This is partly true. But the whole truth environment, and to that extent diversity is also includes the way the nominations committee important for all four linking features they process works in most boards. All too often the establish - understanding otherwise illusive short listing is done by asking 'Is there anyone we information, communicating to the environment, know who will be good for this board'. Given the getting commitments of support from key external skewed ratio of men and women in visible senior stakeholders and legitimizing in the eyes of positions, the default option usually is a man. partners and current/future employees. This last There are several qualified women out there, and feature is a critical one in the Indian context, the way to find them is for nomination committees where firms struggle with the retention of key to spend some money and advertise, or ask a talent. headhunter to systematically create a database A recent study by Booz & Company estimates that from which to choose. If nominations committees if Indian women could achieve employment rates were to follow more formal search processes and equal to men, the country's GDP would increase adopt affirmative action, there will be a quantum by 27 percent. jump in the number of women on Indian boards, In addition, emerging research from the Center for without lowering entry standards in any way. Talent Innovation has strongly correlated diverse At Wipro’s recent annual general meeting, boards and diverse leadership with innovation and Chairman Mr. Azim Premji told shareholders that growth in market share. The research will be the company would have a woman on its board public shortly, but we're talking double digit deltas before the next such gathering. “We are working when compared with companies with non-diverse actively to induct a women director,” he said. leadership. According to media reports, Wipro has been on A 2007 study by McKinsey & Co. found that this task for quite some time now. In February last European companies with women in senior year, in an interview with business daily The management reported higher return on equity, Economic Times , Mr. Ashok Ganguly, an better earnings and steeper stock price gains than independent director and chairman of the their peers. nominations committee of Wipro’s board, had said This not only makes the case for balancing that the company was talking to several women intellectual, life and career experiences and skills candidates. Mr. Ganguly noted: “The discussions on boards, but also for balancing masculine and so far have been very encouraging…. Women feminine traits. Researcher Sandra Bem [9], a leaders come in with a lot of experience and they Stanford University psychologist, developed the bring different perspectives…. We are actively concept of 'androgynous' behaviour. searching.” "Androgynous people can be aggressive or Ms. Vasanthi Srinivasan, associate professor of yielding, forceful or gentle, sensitive or assertive organizational behavior and human resources as the particular situation demands," she says. management, and Ms. Rejie George Pallathitta, Given a board's job description, androgynous associate professor of corporate strategy and individuals would make great board members. But policy, at the Indian Institute of Management we know that while masculine and feminine traits Bangalore, recently presented a study on women are present in all human beings, the process of directors on corporate boards in India. According socialisation causes one set of traits to dull. So to them, “In most organizations, the process of perhaps, the best way to create androgynous identifying and grooming potential women boards is by having a good mix of men and directors is not a structured or formal one. The women on them. talent management process must work toward But why are there are so few women on Corporate developing the required skills and competencies India's boards, and how do we change that? One and create a pipeline of potential women key constraint in India is that of supply. We just directors.”

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International Journal of Innovations in Engineering and Management, Vol. 2; No. 2: ISSN: 2319-3344 (July-Dec. 2013)

According to the Bloomberg Business Week, Heavy-handed enforcement could subvert the October 2013 [3], the research from the Center for spirit of the law, according to Abbott, as some Talent Innovation has shown that there has been a family-controlled companies choose to plug wives, significant Off Ramp issue as women drop out at mothers or daughters as board directors. The mid-management levels due to a combination of Indian law doesn’t specify if women directors pull factors (societal expectations, the pressure to have to be independent. be the care provider to children and to parents, the “Tokenism and nepotism clearly have the potential lack of infrastructure for childcare and education, to diminish the benefits” found in his study, etc.) and push factors - unfriendly work Abbott said that “If the CEO’s wife is appointed to environments play a significant role: 72% of the board, I can’t really see too much benefit in Indian women professionals leave because their that type of action.” careers are not satisfying or enjoyable; 66% leave Susan Stautberg, who co-founded an organization, because they feel their career progression is Women Corporate Directors around her dining stalled. The good news: An overwhelming 91% of table 13 years ago, said that her organization Indian women want to return to work, similar to nurtures “boardable women” on “everything from the US (89%) and significantly more than what questions you could ask the investment Germany (78%).However, there's bad news for banker trying to sell a deal, to where to sit, to employers: 72% do not want to return to their when to ask a question or make a comment.” former employer. There is a stereotype of success Woman Corporate Director (WCD) in India is - for example, 73% of women at multinational headed by Ranjana Agarwal. It is building a companies and 55% at Indian companies say they database of qualified female candidates for board need to compromise their authenticity to conform positions. to their company's standards of executive “Corporates complain they can’t find women presence. willing to be directors and our database can fill Hence, such an initiative can have a significant that gap,” she said in an interview. “The new law directional impact. Larry Senn first wrote about is definitely a catalyst. It will make companies the Shadow of the Leader in 1970 [6]. It gestures look beyond the old boys club while hiring board at the reality of how leaders through their likes, directors.” dislikes, treatment of subordinates, language and Should we women worry about whether a idioms, beliefs and values tends to shape the company including just one woman on the board is characteristics, culture and ways of doing business 'tokenism'? No absolutely not. Even though being in the organisation. When you have a highly male the only one of a kind is daunting, we need to leadership, norms emerge that tacitly exclude - instead ask ourselves once on the board: do we think of the "let's do business over a round of golf" show independent thought, and spine, or do we try or "over a drink" and you'll get the picture of how desperately to belong to the male club that excluded an average Indian woman leader might recruited us as tokens thereby frittering away the be. opportunity to demonstrate the effects of genuine A cautionary word - there is much written about diversity? Women board members should not buy how difficult it can be for a single representative the conventional wisdom of audit committees of a minority (be it a woman, minority, young being the most powerful place to be. That is just leader or a different capability like a non-engineer where the money gets counted. in a group of engineers) to be heard. I will watch On the other hand, there is enormous, long-lasting this space closely to see how the first generation of value to be added to the company and society by brave business leaders fare, as they make inroads being on the remuneration committee and into large promoter and family-controlled boards implementing reward systems that look beyond and boards that have never had a tradition of financials and incentivize 'value right' business- engagement with diversity. strengthening behaviour. Nomination committees are also crucial because that is where who comes 4. Merely Tokenism and Nepotism on the board and how is decided. That is where the board perpetuates itself. That is the place from

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International Journal of Innovations in Engineering and Management, Vol. 2; No. 2: ISSN: 2319-3344 (July-Dec. 2013) which gender diversity on boards can be driven Mr. Duggal will be the programme director for the and better boards built. first year and will assist the mentors and the participants when required. He will initially run 5. Mentoring of Women the programme in partnership with Ms. Anjali Bansal, MD of Spencer Stuart India, after which Mr. Arun Duggal, chairman of Shriram Capital they will try to institutionalise the initiative and and a veteran international banker along with Ms. seek an industry body, management institute or a Anjali Bansal, managing director of Spencer group like the Catalyst of the US to take it Stuart India has initiated a mentoring programme forward. He might take on a mentoring role at that to get more women onto corporate boards and . point. Mr. Duggal, who is running the programme in his The idea, he adds, is to expand the availability for individual capacity, has also roped in several boards a pool of women who are distinguished in leaders including M Damodaran, Deepak Parekh their own field and ambitious enough to move to and GM Rao, to mentor women for directorship the next level and contribute to improving positions in the country. corporate governance. "We reached out to "The fundamental objective behind the programme chairpersons of BSE 100 companies and found is to have better gender balance in boardrooms and that corporate leaders agree on the need to increase to mentor competent women who can go on to the representation of women on board. This become independent directors," says Mr. Duggal, programme is an outcome of that initiative," says who is also a visiting faculty at the Indian Institute Bansal. of Management (IIM), Ahmedabad, and is on the "Indian boards need more diversity of all sorts. boards of several companies. Otherwise, a big Gender diversity is one very important aspect," part of a company’s stakeholders — employees, says M Damodaran, former chairman of Sebi. customers etc. — is not adequately represented "Corporate boards need more women board and the perspective is not broad enough to have members, who can often bring a different multiplicity of views. perspective. Initiatives such as mentoring can help Ms Bansal focused on the studies of Biggins, J. V. identify potential directors and equip them to [10] and she believes that women at all levels in graduate to board positions." corporate India can play a major role but they do Mr. Duggal and Ms. Bansal have currently require mentoring. “We have very high-quality recruited around 50 India Inc. leaders with board women entering the workforce, but there is a lot of experience to act as mentors and around 100 leakage at the middle management level. Having women executives have signed up for mentoring. enough role models will prove that there are One batch of mentor-mentees has already been different ways of making it work,” she says. Mr. matched. The mentoring will go on for around Duggal adds: “Our goal is to mentor and place 100 three months and includes a prescribed reading women in board positions in the next one year. But list, weekly calls and meetings to understand the there is also an issue of mindset [of other board responsibility of board members. Wherever members]. We need to ensure that these women possible, mentees will get the opportunity to attend are effective as board members. And we hope that board meetings after getting the required in due time this program will no longer be permission from the respective boards and signing needed.” the requisite confidentiality agreements. The concept of a mentoring program came to the Women - including Mukeeta Jhaveri, a former duo after an interaction with the New York-based investment banker and wife of Citi India CEO Catalyst Group, which last year did a pilot project Pramit Jhaveri, Vinati Kastia, partner with AZB & in the U.S. under which 15 women executives Partners; SC Sharada, director of Lex Valorem were mentored for board positions. “That initiative India, and Mythily Ramesh, co-founder and CEO went off well and is now being done in places like of NextWealth- have signed up so far. the U.K., Canada and Australia. So I thought we Hari Bhartia, co-chairman and managing director could try something similar in India,” says Mr. of Jubilant, Saroj Kumar Poddar, chairman of Duggal. Adventz Group, Saurabh Srivastava, chairman of CA Technologies India, DA Prasanna, chairman

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International Journal of Innovations in Engineering and Management, Vol. 2; No. 2: ISSN: 2319-3344 (July-Dec. 2013) and managing director of Ecron Acunova, Nihal provided by the provision in Companies Act, 2013 Kaviratne, chairman of Akzo Nobel India, and MS on this issue. Compulsion of appointing at least Verma, former chairman of SBI, have also signed one woman as a director can prove to be the up as mentors. balancing act but does that happen in spirit would The mentoring process will start from August and have to be investigated. take around three months during which the At the face of it, it is a corrective action to bring in mentees will get first-hand experience of how the balance in board rooms in terms of gender, things work in boardrooms and understand the talent and skills. It is important for corporate roles boards play in corporate governance, policy boards to ensure gender diversity, but before that making and strategy. The mentee will be invited to happens, a supply of women eligible for board attend a few board meetings, committee meetings positions needs to be created. Clearly, major and the company AGMs, after signing a efforts will have to be made to create more women confidentiality agreement. After completing the directors, but before that there have to be more programme, the mentee will be assisted in joining women reaching the top of the corporate a suitable board with the help of the mentor, hierarchy. The legislation should act as a spur to programme director and executive search firms. women’s empowerment, but compliance could be years away. 6. Boards Need Diversity References: Mattis, M., [12] highlights that having more women on boards can benefit companies in several [1] The Economic Times, Aug 13, 2013, ways. For companies where women are key [2] Business Today, September 2011 edition. customers, a woman board member can bring [3] Bloomberg Business Week, October 2013. valuable insight. Women also bring a unique skill [4] The Companies Act, 2013. set of creative inputs, out-of-the-box thinking, [5] Rekha Handa & Balvinder Singh, collaboration and more wisdom to the table where “Strengthening Board Rooms through ethical issues are concerned. "In companies where Women: Needed Resource for Effective 30% to 50% of the workforce is female, a woman Governance”, Chartered Secretary, October board member can bring into discussion aspects 2013. pertaining to women employees that men can't [6] Larry Senn, “ The Shadow of the Leader”, easily think about," says Kaviratne, whose earlier 1970 global career with Unilever spanned 40 years. [7] M Luckerath-Rovers of Nyenrode University Agrees Mukeeta Jhaveri, who Kaviratne will “Study of Dutch companies”, 2011 mentor: "More women in the workplace and on [8] Fernandez, J. P., The diversity advantage: boards will result in a better work-life balance for How American business can outperform families overall." Javeri, who has a background in Japanese and European companies in the finance, investment and marketing and was global marketplace. New York: Lexington formerly with DSP Financial Consultants in Books, 1993. international capital markets, feels this is the ideal [9] Sandra Bem, Stanford University’ way for her to get back into corporate India after "Androgynous people”, 1976. having a ring side seat for 18 years. [10] Biggins, J. V., Making Board Diversity Work, Corporate Board, 20(117), 11–17, 7. Conclusions 1999. [11] Michaels III, E. G. , The War for Talent, The Compared to the stiff quotas in the Europe, the McKinsey Quarterly, 3, 44– 57, 1998. norm proposed in India is a modest, yet important, [12] Mattis, M., Women directors: Progress and beginning. Research studies indicate a more opportunities for the future. Business and representative Board enhances governance, ethical contemporary world, 140-156, 1993. behavior and shareholder value. The conclusion drives us to fact of the situation being grim but the ray of hope lies in the mandate

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